Hoboken, NJ · Member since 2016 · 15 posts · 4 votes
Hello all,
I have a question regarding getting my first loan through a portfolio lender to finance my first flip.
I hear a lot of people say that you should have your financing in place and be pre-approved before looking for deals and securing a deal. I have also heard when going to a local bank to get a portfolio loan you should have a business plan to show the lender and convince them that your investment will produce positive returns resulting in a low possibility of defaulting on the loan.
So what comes first? Do I find a deal, run the numbers, and put together a business plan before going to the lender trying to get a loan? If the lender approves the requested loan, then do I go make an offer? My concern is that if I do it this way, the deal will likely no longer be available by the time I have the financing in place.
Any advice will be greatly appreciated! Thank you!
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Tom Pignatello My experience has been to at least send over the application and your financials first to see if the lender is interested in working with you. They may have a min credit requirement, require xx amount of bank statements, tax returns, etc. I felt the paperwork is about the same as a nationwide lender, but the turnaround time much quicker.
Then find a deal and present it. There would be additional review at this point: ordering the appraisal, downpayment requirements, and the paperwork for the rehab draws and terms.
The local banks I've worked with required 25% down on the purchase price, the rehab was done in drwas after the inspections, but all one closing and then the loan converted to a permanent loan once the draws were complete.
20 year term resetting every 5 years, for me. I do mine as buy and hold and I noticed you said "flip", so your terms may be a bit different.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Tom Pignatello My experience has been to at least send over the application and your financials first to see if the lender is interested in working with you. They may have a min credit requirement, require xx amount of bank statements, tax returns, etc. I felt the paperwork is about the same as a nationwide lender, but the turnaround time much quicker.
Then find a deal and present it. There would be additional review at this point: ordering the appraisal, downpayment requirements, and the paperwork for the rehab draws and terms.
The local banks I've worked with required 25% down on the purchase price, the rehab was done in drwas after the inspections, but all one closing and then the loan converted to a permanent loan once the draws were complete.
20 year term resetting every 5 years, for me. I do mine as buy and hold and I noticed you said "flip", so your terms may be a bit different.
Investor · Greenville, SC · Member since 2016 · 163 posts · 108 votes
10y
@Tom Pignatello I have done it both ways and here are my overall thoughts based on my experience.....
Typically Portfolio Lenders have a little bit more relaxed guidelines and care more about the feasibility of the project and potential rent assignments than the borrower. I have had a sit down meeting with the lender before getting pre-approved and finding a property to let them know exactly what my competitive advantages are and what my "ideal project" looks like. Almost like a really simple business plan. (The lender wanted to chat on the phone, i actually went to her and got face to face with her, i think that made a good impact)
I find that having all your paperwork done and turned in before finding the property provides you with a little more leverage negotiating. For instance, i bought a HOT house from a wholesaler and because i knew all the bank needed to do was order the appraisal and analyze the budget of the rehab and then the ARV, I could close in 2-3 weeks. If you are competing with individuals that are cash buyers (which is typically the case) that may help shrink the gap between your projected closing time and theirs making your slightly higher offer more competitive to and individual who needs to close FAST.
I would recommend knocking out all the paperwork Because each bank and underwriter are different, you want to get all these little annoying things out of the way upfront. Here is a list of the items my bank request on my first deal with them.
@Tom Pignatello My experience has been to at least send over the application and your financials first to see if the lender is interested in working with you. They may have a min credit requirement, require xx amount of bank statements, tax returns, etc. I felt the paperwork is about the same as a nationwide lender, but the turnaround time much quicker.
Then find a deal and present it. There would be additional review at this point: ordering the appraisal, downpayment requirements, and the paperwork for the rehab draws and terms.
The local banks I've worked with required 25% down on the purchase price, the rehab was done in drwas after the inspections, but all one closing and then the loan converted to a permanent loan once the draws were complete.
20 year term resetting every 5 years, for me. I do mine as buy and hold and I noticed you said "flip", so your terms may be a bit different.
Hope that helps and good luck!
- Tom
Tom i have the same terms and approach, they are letting me get away with 20% down right now, however i am sure my average price point is lower than yours. (80k -150k)
Hoboken, NJ · Member since 2016 · 15 posts · 4 votes
10y
@Tom S. Thank you for the advice Tom! I am going to put together a financial resume and approach a few small banks in my area to see if there is interest on their end in regards to lending to me and then take it from there.
@Mario Brown This is good advice Mario. I really like your strategy of having all the paperwork done and turned in before finding the property since it gives the opportunity to compete with cash buyers.